Cambi ASA

OSE:CAMBI

Earnings Call Analysis

Cambi Reports Solid Q3 Growth with Strong Order Backlog and Investment in Future Capacity

In Q3 2024, Cambi reported revenue of NOK 277 million, an 18% increase year-over-year, reflecting solid performance across its Technology and Solutions segments. EBITDA remained stable at NOK 68 million, with a notable gross margin of 57%. The company maintains a robust order backlog exceeding NOK 1.3 billion, expected to contribute significantly to future revenues, with around 15% anticipated to convert by year's end. Cambi's strategic investments, particularly in sales and marketing, position it for growth, with an ambition to pay out 60% to 80% of net profits as dividends in 2024.

Cambi's Strong Q3 Performance

Cambi's recent earnings call revealed robust growth, with third-quarter revenues reaching NOK 277 million, an impressive 18% increase over the same quarter last year. This represents the company’s seventh consecutive quarter with revenues exceeding NOK 200 million, highlighting a stable upward trajectory in their financial performance.

Balanced Profitability and Investments

The company's EBITDA stood at NOK 68 million, consistent with Q3 of the previous year, reflecting a balanced approach to profitability while making strategic investments in research and development, marketing, and project execution. This strategic focus indicates Cambi's commitment to sustainable long-term growth without sacrificing immediate profitability.

Order Intake and Backlog Insights

Although no major contracts were awarded during this quarter, Cambi reported an order intake totaling NOK 117 million from smaller contracts and change orders. This brings the order backlog to a substantial NOK 1.3 billion, reinforcing Cambi’s financial stability and providing good visibility into future revenues, with expectations to convert approximately 15% of this backlog into revenue by the end of the year.

Segment Performance Breakdown

A closer look at Cambi's segments reveals that the Technology segment generated NOK 196 million in revenue, indicating solid ongoing construction project execution with a gross margin improvement to 62%. The Solutions segment also saw revenue growth, reporting NOK 81 million, notably a 23% increase compared to the same quarter last year, despite a dip from the last quarter.

Strong Market Position and Future Prospects

Cambi is well-positioned for growth, particularly in the UK market, where they operate 25 THP installations serving up to 50% of the population. With a new asset management planning period beginning in January 2025, Cambi anticipates increased activity in securing new contracts, signaling a potentially fruitful horizon for the company.

Commitment to Shareholder Returns

Cambi’s solid financial positioning allows them to maintain ambitions for shareholder returns, with plans to distribute 60% to 80% of the net profits as dividends for the financial year of 2024. This commitment to shareholder value reflects confidence in ongoing financial performance.

Operational Highlights and Project Updates

The operational side saw no significant disruptions, with the commissioning of two major projects in North Carolina and Denmark, underscoring Cambi’s ability to execute complex projects efficiently. Ongoing construction projects at various stages also affirm their operational resilience, bolstered by a productive manufacturing pace for future key projects.

Currency Exposure and Financial Strategy

Cambi is exposed to multiple foreign currencies, with revenue impacted positively by a weaker NOK against the Euro, USD, and GBP. This currency effect alongside positive project mix has contributed to improved margins, indicating Cambi’s strategic navigation of currency risks within its operational framework.

Environmental Stewardship and Brand Evolution

Cambi introduced a refreshed brand identity this quarter, which aligns with their mission as a leader in sustainable wastewater technology, further emphasizing their commitment to circularity and environmental stewardship. This rebranding is not only aesthetic but is intended to enhance brand visibility in the digital landscape.

Conclusion: A Solid Quarterly Step

In summary, Cambi’s Q3 results showcase a company on solid footing, with significant growth across revenues, a healthy order backlog, and ongoing investments in capabilities that support future expansion. Looking ahead, their strategic positioning, especially in high-potential markets like the UK, alongside an unwavering commitment to delivering shareholder value, sets a positive outlook for the remainder of 2024.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, and thank you for joining Cambi's presentation of our third quarter results. My name is Anders Sromode. I'm the Marketing Director at Cambi.

Over the next 30 minutes, our CEO, Per Lillebo; and CFO, Mats Tristan Tjemsland, will walk you through the highlights of our recent business achievements and financial performance.

We will address any questions after the presentation, so please feel free to send them to our Investor Relations team at [e-mail].

Please note that today's presentation may contain forward-looking statements that involve risks and uncertainties, meaning actual outcomes could vary from our expectations. Now I'm pleased to introduce Cambi's CEO, Per Lillebo.

[Per Lillebo, executive]

Good morning, everyone. I'm pleased to present Cambi's financial performance for the third quarter of 2024, reflecting another solid quarter for the company. Revenue for the quarter was NOK 277 million, 18% above the same quarter last year, reflecting high activity levels in both the Technology and the Solutions segments.

This was the seventh consecutive quarter with revenue higher than NOK 200 million. EBITDA was NOK 68 million, which is similar to the same quarter last year. This quarter, we balanced strong profitability with investments in areas like R&D, marketing and sales and project execution capacity.

This is a healthy sign for Cambi, showing that we can maintain earnings while we continue investing to make the company grow. There were no new notable contract awards during the quarter, but many smaller awards and change orders brought the total order intake to NOK 117 million.

Last year's third quarter brought record high order intake, illustrating the unpredictable timing of contract awards. However, our order backlog remains robust at more than NOK 1.3 billion, providing stability and visibility for upcoming quarters. We currently have reference plants in 27 countries. with 90 sold installations capable of processing the sludge from 120 million people.

On this slide, we can see how Cambi's technology is spread across diverse regions. Our project execution capabilities demonstrated over several years have allowed us to build trust with partners worldwide, reinforcing Cambi's reputation.

This quarter, we launched our new visual identity, including a modern logo and website suitable for the modern digital world. It is a modern, clean and simple design that can be used on digital channels. In addition, it shall inspire several design elements to be used in our brand moving forward.

From the logo, you can read growth, circularity, water and the latter sea. We believe this updated identity will strengthen Cambi's recognition and help us effectively communicate our role as a leader in sustainable wastewater technology solutions. Moving on to the operational review. Cambi continued its project execution according to plans with no notable disruptions.

Two major projects were commissioned, the THP for the biosolids recovery project in Raleigh, North Carolina and the project delivered to Biofos at the Damhusaen wastewater treatment facility in Copenhagen.

Each installation has demonstrated Cambi's ability to deliver on time and according to client specifications. In Copenhagen, Cambi acted as a turnkey supplier, demonstrating our capacity to take on wider scope beyond the THP in markets close to home.

Additionally, installation work proceeded at the sites at Lillestrom, Norway and Secunda, the Sasol plant in South Africa. Moving on, manufacturing has progressed steadily for other key projects.

The THP unit for Singapore and San Francisco commenced production at our workshop in Congleton, and we are on track to deliver on time. During the third quarter, we also started purchasing the materials for the THP to be delivered in Louisville, Kentucky. Our engineers were also busy.

The 3 projects in Norway, Australia and New Zealand completed the engineering phase and moved into purchasing as scheduled. Additionally, the project in Ukraine has resumed after being on hold due to force majeure for more than 2 years. This is a positive outcome given the complexities involved. In the Solutions segment, the third quarter has been a period of high activity in the services organization with progress across several areas.

We have 2 upgrade projects currently in commissioning. We have made substantial headway in Dublin at Irish Water's Ringston facility and in Norwhich at Anglian Water's Wittingham plant.

Both projects were approaching completion by the end of the quarter. These upgrades represent Cambi's commitment to ensure our clients get the best value from their existing assets and that these facilities will have a life far longer than the original 20-year operational lifetime.

These are infrastructure investments that may be in operation for 40-plus years with systematic maintenance and upgrading. Beyond these projects, we have also made progress in other upgrades and engineering study we initiated earlier in the year has now been completed, providing valuable insights that guide next steps for one of our clients.

Additionally, we have started a new engineering study for a potential upgrade site in the U.K. The third quarter is a high season for annual THP maintenance and other site services. Our team has been particularly active in the U.K. and Central Europe, supporting clients with essential maintenance and yearly shutdowns managed by Cambi. To meet rising demand, we have continued to expand our services team. For RENWEX, our soil business in Norway, the third quarter saw positive volume growth and operational and organizational strengthening to meet future demand.

We are presently investing in RENWEX to enable the company to grow profitably in the years to come. A new CFO has joined RENWEX at our headquarters in Grimstad, strengthening the leadership in RENWEX. We saw substantial growth in bulk soil sales which increased to 81,000 tonnes this quarter, up 23% from the same period last year. We have reached 221,000 tonnes of bulk soil sales from January to September this year, a 27% rise from the same period in 2023.

The team has done an excellent job in meeting this demand. Our retail soil business is also gearing up for future expansion. We stayed on track with soil bag deliveries from the bagging facility through this quarter and production has already started for deliveries in the spring of 2025.

To support growth, RENWEX signed agreements for additional production areas in the third quarter, allowing us to triple our capacity for especially peat-free soil blends. While we didn't secure any large new contract this quarter, we added several smaller ones, contributing to a steady workflow.

Overall, RENWEX is well positioned for sustainable growth with increased production capacity and an expanding market presence. Since the end of the third quarter, one highlight has been a new contract in Spain. At the end of October, we secured a small project in Palma de Mallorca. This project is in collaboration with a Spanish construction consortium.

The installation will demonstrate our THP technology between 2 digestion steps. We term this solution as high THP. This means intermediate THP. This configuration is normally used in retrofit projects where there is enough digester capacity available.

This solution allows for a smaller THP as we hydrolyze only the biosolids that have been digested in a conventional step in front of our THP process. Delivery is scheduled for 2026 with operations expected to begin in 2027. Palma is Cambi's fourth project in Spain, bringing total installed capacity above 2 million people equivalent. However, this is only 5% of the total Spanish market potential.

I'm optimistic that we will win new contract awards in Spain in the coming years. Another important update concerns Cambi's leadership. In August, I assumed the role of CEO following Eirik Hardne's departure. Additionally, on October 25, Andreas Merck was appointed the new Chair of the Board, taking over from me.

Andreas represents Cambi's second largest shareholder and has been on Cambi's Board since 2022. The transition ensures that Cambi remains on a stable path of future of growth and innovation, supported by an experienced leadership team.

Looking ahead at the outlook, we see steadily increasing interest in Cambi solutions in various regions as demonstrated by a high activity level in our proposals and sales teams. Cambi's outlook is strong as we continue building capacity across multiple markets. We are expanding our reach through several initiatives to support this growth.

The U.K. has traditionally been our main market. We currently have 25 THP installations across the country, which together can serve up to 50% of the U.K.'s population.

Our last major contract in the U.K. was in 2021 for Southern Water. As the U.K. market is privatized, it's functions under the supervision of the Water Services Regulation Authority called Ofwat.

This market has been absent for new technology sales since 2021. The new planning period starts January 1, 2025, called AMP8, asset management period. This 5-year investment cycle is expected to drive meaningful infrastructure upgrades and Cambi is well positioned to secure new THP contracts in the coming years.

Our extensive track record and established relationships allow us to support the U.K.'s water utilities as they make critical investments in sustainable sludge treatment and becoming energy neutral.

In summary, Cambi's activity level is in high potential markets and our standing in the U.K. sets the stage for high activity going forward. And now I would like to pass the word to Mats, who will walk you through Cambi's financials in the third quarter.

[Mats Tjemsl, executive]

Thank you, Per, I'll now take you through the financial performance for the third quarter. First, let's take a look at some of the financial highlights.

With good operational results comes good financial results, and we are pleased to report another quarter with solid revenue and EBITDA performance.

Cambi has a scalable business model and when the activity level is high, it unlocks profitability as illustrated by the reported EBITDA margin of 25% this quarter.

The revenue of Solutions segment reached NOK 300 million on a rolling last 12-month basis, marking an important strategic milestone for the company. We received fewer milestone payments from ongoing construction projects in the quarter, impacting cash flow from operations negatively.

However, Cambi has a solid financial position with no long-term debt. We repeat our ambition to pay out dividends of 60% to 80% of net profits for the financial year of 2024. Let's take a look at some of the key financials on a consolidated level. We report revenue of NOK 277 million and an EBITDA of NOK 68 million in the third quarter. Revenues were up from NOK 235 million in the same quarter last year and down from the all-time high in the previous quarter.

This performance is mainly a result of steady progress made on our portfolio of ongoing construction projects. Gross margins were reported at 57%, which is up from the previous quarters, mainly due to project mix.

Also, the majority of Cambi's revenue is from foreign currencies and Cambi is mainly exposed to USD, euros and pounds. In Q3, the average NOK exchange rate was 2% to 5% weaker towards these currencies versus the same quarter last year, which has a positive impact on our reported numbers in NOK.

Cambi is a growing organization, and we have made conscious targeted investments in increasing the capacity of the company, primarily within sales, marketing, project execution and other areas, increasing payroll costs.

Let's take a closer look at the performance of our business segments. The Technology segment covers sales, R&D, manufacturing and the delivery of THP systems. Revenue was reported at NOK 196 million in the third quarter, which is higher compared to the same quarter last year and lower versus the previous quarter. Gross margin was reported at 62%, up versus previous quarter and the same quarter last year.

The increase is driven by positive currency effects mentioned earlier, project mix and reduction of cost accruals for some projects. As mentioned, the financial performance is driven by steady progress on the ongoing construction projects where Cambi is set to deliver on client schedules. At the end of the quarter, there were 15 ongoing construction projects in various stages of execution.

The number of ongoing projects is at the same level at the same quarter last year. In addition, the project in Lviv, Ukraine has been reactivated this quarter after having been on hold for more than 2 years. EBITDA came in at NOK 55 million, slightly lower than the third quarter last year and the previous quarter.

Overall, we are satisfied with the performance of the segment, allowing us to continue to invest into areas of future growth. Let's take a look at the financials for the Solutions segment, which covers our offering towards existing customers and the recycling company, beyond mix. In Q3, we report revenues of NOK 81 million, up from NOK 66 million in the same quarter last year and down from the previous quarter.

The revenue split is around 50-50 between subsegments with services and recycling in Q3. For services, we see continued increase in the demand for site services and upgrades driven by delivery of new projects and gradually aging installed base.

At the end of the quarter, there were no ongoing construction contracts, down from 3 in the same period last year. For recycling, book soil sales were up 23% compared to the same period last year. And the team has started production and bagging of peat-free soil for the spring season of 2025, as Peri mentioned earlier. Gross margins are slightly up versus the same quarter last year and the previous quarter.

Let' s zoom out and take a look at the long-term development over the last 12 months. Especially in Solutions, there is seasonality with both more soil sold during the summer months and more services such as annual shutdowns done during the same periods.

The last 12-month view helps to smooth out these seasonalities and other fluctuations from quarter-to-quarter. Key financials on a rolling LTM basis show that revenues were just shy of NOK 1.1 billion in Q3, the highest level on record. And the LTM EBITDA in Q3 is in line with the full year EBITDA for 2023 and the LTM EBITDA in the previous quarter. And this development demonstrates Cambi's scalable business model. And let's also take a quick look at the LTM development for our business segments.

The Technology segment has operational leverage, which unlocks profitability when the activity level is high. And as we have communicated before, the Solutions segment is an important strategic priority for Cambi, and we are pleased to report that the LTM revenue surpassed NOK 300 million in Q3, the highest level on record.

Let's move over to the order intake for the quarter. No contract awards were announced in Q3 and the reported order intake of NOK 117 million includes other revenues such as spare parts, consulting, variation orders, index regulation on existing contracts and contracts that are not above the threshold for stock market announcements, which is set at NOK 15 million.

In addition, the order intake will include a currency effect from the order backlog based on fluctuations in currency closing rates from quarter-to-quarter. In Q3, there is a positive impact of NOK 9 million in the reported order intake for technology, driven by slightly weaker NOK.

As I mentioned, the Lviv project in Ukraine was reactivated during the quarter, and the reported order intake this quarter also includes an agreed-upon price escalation for the project to compensate for cost increases in the period where the project was on hold.

Also, following the end of the quarter, a small contract in Spain was announced, and we categorize contract sizes when announcing them and a small contract is in the range of NOK 15 million to NOK 50 million.

Let's take a closer look at the order backlog. The reported order backlog represents the value of total amount of work that Cambi has committed to complete in the future. The order backlog was NOK 1.3 billion by the end of the quarter, down from NOK 1.8 billion for the same quarter last year and down from the previous quarter.

The backlog decrease from the previous quarter is mainly driven by revenue recognition on ongoing construction contracts.

In Solutions, there are no ongoing construction contracts at the end of the quarter, meaning that the reported backlog in Solutions is only including the value of the remaining work on the RENWEX Biosolids and garden waste handling contracts, inclusive of contract extension options. Backlog provides good visibility for future activity levels, which brings us over to the backlog distribution. The distribution by execution year is illustrated on the left-hand side.

And the breakdown is based on the most recent client project delivery schedules. We expect to convert around 15% of the current backlog of NOK 1.3 billion into revenues for the rest of this year. And in 2025, we expect to convert more than half of the current backlog into revenue. The remaining 30% of the backlog is expected to be converted into revenue in 2026 and beyond.

On the right-hand side, we have provided a breakdown of the order backlog by currency. And the backlog at the end of the quarter is roughly evenly split between NOK, USD and euros. In the future, we expect the share of backlog in NOK to be lower as the majority of Cambi's potential lies internationally. Let's take a look at the income statement.

I've already mentioned some of the key developments, but I'd like to highlight a few important topics. As a reminder, Cambi's financial statements are prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway.

This means that the gross margin only takes into consideration materials, goods and services for manufacturing of the products and not other direct costs associated with making the product, such as direct labor costs and direct factory overhead costs. These costs are included in the operating expenses.

The payroll cost is primarily driven by the gradual headcount increase in the organization as it continues to grow, as I have already mentioned. Around 40% of the payroll costs are in other currencies than NOK, which is influenced by the foreign exchange rate.

The weak NOK lifts the reported payroll costs in NOK due to this. In addition, as of 2024, we report payroll costs with remuneration policy accruals on a quarterly basis, which was not the case for Q3 last year, where Cambi reported the entire annual cost of variable remuneration in Q4.

Other operating expenses is in line with the previous quarters, but Q3 last year was impacted by the reversal of project-related accruals. The reason for this was a change of principle where costs related to construction projects that are a part of OpEx will not follow the percentage of completion method.

The accrual reversal had a positive impact of NOK 20 million in Q3 2023. And out of this impact, around half was related to the first half of '23 and the other half was related to 2022.

Depreciation and amortization were reported at NOK 7 million and is in line with previous quarters, and it mainly consists of the IP from an acquired technology portfolio in 2022.

The portfolio will be fully amortized during Q2 next year, reducing the current quarterly depreciation and amortization cost with NOK 4 million. The reported net financial items are negative NOK 5 million in the second quarter, which is primarily a result of Agio. In addition, costs related to bank guarantees and interest income is also included in this figure. The income tax in Q3 was NOK 14 million.

And as I mentioned in previous quarterly presentations, income tax will be reported on a quarterly basis going forward. However, the full and comprehensive income tax will be calculated on a yearly basis in the annual report. Let's move over to the balance sheet.

Total assets reported at NOK 765 million, slightly down from last year and up from the previous quarter. Bank deposits decreased to NOK 174 million in the second quarter, down from NOK 282 million in the same quarter last year and down from the previous quarter.

Debtors was reported at NOK 414 million in Q3 and includes earned not yet invoiced revenue from construction contracts of NOK 254 million, significantly up from last year.

Current liabilities include accrued project-related costs of NOK 124 million in the quarter, which is at the same level as last year. There is no long-term debt. And all in all, Cambi has a healthy balance sheet.

Finally, let's turn our attention to the cash flow statement. The cash flow is mainly derived from the cash flow from operation activities as Cambi has a capital-light business model. The operational cash flow was negative NOK 79 million in the quarter, significantly down from the same quarter last year and previous quarter.

Main reason for this is timing effects where fewer milestone payments was received from the portfolio of ongoing construction contracts.

The payments for purchase of fixed assets is mainly related to biosolids handling contracts within our recycling subsegment. And before we move over to the Q&A, I'd like to mention that we have just launched our brand-new investor portal.

In the portal, we have gathered all relevant information for investors in one place such as general meetings, dividend policy, live and historical share data and so on.

Check it out and make sure to subscribe for future stock exchange announcements. This concludes my walk-through of the financials for this quarter, and let's move over to the Q&A session.